Canada budget 2025: Five tax changes that you need to know about

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Cancellation of the Canadian entrepreneurs’ incentive

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If you’re a business owner hoping to take advantage of the new Canadian Entrepreneurs’ Incentive (CEI) on the sale of your business, you’re out of luck. The CEI, which was introduced in last year’s federal budget, would have further reduced the tax rate on up to $2 million of capital gains over an individual’s lifetime on the sale of a qualifying business. The lifetime limit was to be phased in by increments of $400,000 per year, beginning on January 1, 2025, before ultimately reaching a value of $2 million by January 1, 2029. This measure would have applied in addition to the lifetime capital gains exemption, which was recently enhanced to $1.25 million.

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The budget announced the government’s intention to cancel the CEI in light of its decision earlier this year not to proceed with the proposed increase to the capital gains inclusion rate.

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Cancellation of the Underused Housing Tax

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The Underused Housing Tax (UHT) came into effect on Jan. 1, 2022, and applies to certain owners of vacant or underused residential property in Canada, who were, for the most part, non-resident, non-Canadians. The UHT is currently imposed on an annual basis at a rate of one per cent on the value of the property.

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The federal budget proposed to eliminate the UHT as of the 2025 calendar year. As a result, no UHT would be payable and no UHT returns would be required to be filed for 2025 and subsequent calendar years.

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Cancellation of the luxury tax on boats and airplanes

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If you’ve been holding off on buying that luxury boat or airplane, your wait is over, as the luxury tax is being repealed on boats and airplanes as of November 5.

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Readers may recall that in 2022 the federal government introduced a luxury tax on vehicles and airplanes with a value above $100,000, and boats with a value above $250,000. The luxury tax is equal to the lesser of 10 per cent of the total value of the item, and 20 per cent of the value above the relevant threshold. The tax is generally imposed on sales, imports and leases of high-value vehicles, airplanes, and boats.

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No changes to RRIF minimums

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Finally, retirees holding their breath for a relaxation of the registered retirement income fund (RRIF) required minimums might as well give up, at least for now. You’ll recall that in the run-up to the election, the Liberals promised to “protect retirement savings” by reducing the minimum amount that must be withdrawn from a RRIF by 25 per cent for one year. This measure was designed to “allow Canadian seniors more flexibility in choosing when to draw from their retirement savings.”

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The requirement to withdraw a minimum annual amount, whether you need it or not, is one of the biggest concerns voiced by some seniors when it comes to retirement planning since it effectively forces them to pay tax on their retirement assets before they need to spend them. Experts say that the RRIF rules haven’t kept up with recent demographic and economic trends.

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&LTem>&LTa href=”https://financialpost.com/tag/jamie-golombek” target=”_blank” rel=”noopener”>Jamie Golombek&LT/a>, &LT/em>&LTem>FCPA, FCA, CFP, CLU, TEP, is the managing director, Tax &ampamp; Estate Planning with CIBC Private Wealth in Toronto. &LT/em>&LTa href=”mailto:[email protected]” target=”_blank” rel=”noopener”>&LTem>[email protected]&LT/em>&LT/a>.

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Jamie Golombek, FCPA, FCA, CFP, CLU, TEP is the Managing Director, Tax & Estate Planning with CIBC Private Wealth in Toronto.

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